Question
of the week Question of the week

Curious. Interesting. Informative.

24 November 2016

Double up - maybe

Sale, Purchase, Mortgage, Lease
New South Wales

Asked

Our client is the original purchaser of an off-the-plan property in NSW. As they approach settlement, they instructed us that they would now like to ‘nominate’ a third party. The vendor has agreed and sent us a nomination form stating that the purchaser and the nominee are now jointly and severally liable for performing the contractual obligations to be signed by the nominee and the purchaser.

1. Will stamp duty now be payable twice?

2. What is the legal effect of this nomination form? Will the nominee really be jointly liable or will they need to enter into a new contract with the vendor?

Answered

Thanks for the question.

The following are extracts from our Purchase of Real Property commentary:

A novation is where the original contract is cancelled and the new purchaser enters into a new contract with the vendor. See J R Stevens Holdings P/L v von Begensey (1992) ANZ ConvR 375 and Article (1997) 71 ALJ 12.

...

Any transaction that is in effect a sub sale is liable for duty. The idea that duty is payable only once if the contract provides for a purchaser or a nominee is false. However if a novation agreement is entered into between the purchaser and nominee no double duty applies provided that no benefit passes to the purchaser and the sale remains the same except as to the identity of the purchaser. Duty is payable on the novation and, if not a subsale, the duty paid on the original contract is then cancelled: Revenue Ruling No. DUT 011.

The following is an extract from OSR ruling DUT011:

Novation

4. Cancellation of an agreement often arises in the context of a novation, being the substitution of a ‘new’ agreement for an ‘old’ agreement in consideration of the discharge of the ‘old’ agreement. It is, of necessity, tripartite. In the case of the sale of land, it involves the original vendor, the original purchaser and a substituted purchaser. Usually, the terms of the agreements are the same and the only change is the substitution of the purchaser or the addition of a further purchaser. Following novation, the liabilities, obligations and interests of all the parties under the ‘old’ agreement are determined.

5. Regardless of the number of instruments involved, novation involves two agreements for the sale or transfer of dutiable property, the original agreement and the substituted agreement. Ad valorem duty is payable on the substituted agreement as a dutiable transaction. The original agreement will also be chargeable with ad valorem duty, subject to the provisions of section 50.

Subsale - section 50 (1) (a)

6. Where an agreement is cancelled to give effect to a subsequent agreement, the original agreement will be assessed as not liable if the Chief Commissioner is satisfied that the agreement was not rescinded or annulled to give effect to a subsale. In forming an opinion as to whether or not the substituted agreement is a subsale, the Chief Commissioner looks primarily at the intention of, and the benefit passing to, the original purchaser as a result of the cancellation of the original agreement.

Regards

Mentor